In this Zacks Industry Rank piece, I want to look into another demographically attractive banking region: the Southeast USA. Recently, I highlighted small banks serving the demographically attractive Western Region of the USA.
My top-down investing interest is piqued by obvious metrics. The Zacks Industry Rank for Banks-Southeast is currently #50 out of 265 industries we rank (top 19%). The Finance sector is #2 out of 15 (top 13%).
Let’s start off. Look at how Zacks currently ranks USA banking regions—
Notice anything in the above table?
Demographically attractive Sunbelt region shares have been bid up the most.
Current higher ranked regional banking areas -- the Northeast and Midwest -- are the Snowy lands. These areas one-year bank returns lagged behind, a bit, in the huge share price run-up on USA regional bank shares.
All regional bank returns facts are genuinely scary to me as a Value investor. The 1-year return for the Western regional bank industry rose a whopping +65%. The Southeast region is up +70%. The Southwest region (where I live) is up +76%.
Zacks VGM scores of F -- based on terrible Zacks Value metrics -- is the norm, in bank stock after bank stock.
When buying a regional bank stock, valuation and solid annual dividend payouts used to be the attraction. That game is fully played out, broadly speaking.
Only in the Northeast (up a ‘paltry’ +52%) and Midwest (up +57%) do the industry-wide bank valuations look better. And I write that only as a relative sector benefit. Truly, these regional banks have run up hard and fast too.
After this Southeast bank industry share price run (+70%), what can be done profitably?
All of my Southeast picks get a Zacks #2 Rank (BUY) rating. The Zacks #1 Rank (STRONG BUY) stocks looked too pricy to me, once again.
I list three different small-cap Southeast banks.
To give a flavor for how to invest, I wanted one stock from each major style class. The first one is classed as a Growth stock. The second one is a Value stock. The third is a Momentum stock.
(1) Growth stock: National Commerce Corporation (NCOM - Free Report) is an Alabama bank holding company.
The company operates primarily in Alabama: Huntsville, Auburn-Opelika, Baldwin County and Vero Beach, Florida. National Commerce Corporation is headquartered in Birmingham, AL.
This is Zacks #2 Rank (BUY) small-cap stock, with $413 million in market capitalization. Shares price at $37. The stock price technical chart shows some modest lift. The Zacks Momentum score is C. The Zacks Value score is C. However, the Zacks Growth score is B. The overall Zacks VGM score is B.
What’s the attraction? Annual earnings per share (EPS) looks to go from $1.81 a share this year to $42.25 a share next year. That’s a projected EPS growth rate of +12.4%. The forward P/E ratio is 20.88. That’s high. But it’s a growth stock.
(2) Value stock: Fidelity Southern Corporation (LION - Free Report) ) is a bank serving Atlanta and Jacksonville.
Through its operating subsidiary Fidelity Bank, this institution provides a wide range of banking, mortgage and investment services through branches in Atlanta, Georgia. Mortgage, construction, and automobile loans are also provided through offices in Jacksonville, Florida.
This is Zacks #2 Rank (BUY) small-cap stock, with $626 million in market capitalization. The dividend is $0.48 (1.99%) annually. Shares price at $24. The stock price technical chart looks FLAT. This stock might be done with its run higher. The Zacks Momentum score is F. But the Zacks Value score is B. The overall Zacks VGM score is C.
What’s the attraction? The forward P/E is 15.27. That’s a reasonably priced stock.
(3) Momentum stock: Eastern Virginia Bankshares (EVBS) is a Virginia bank holding company.
The Virginia area served by them is primarily the counties of Essex, Northumberland, King & Queen, King William, Richmond, Lancaster, Hanover, Gloucester, Middlesex and Caroline.
This is Zacks #2 Rank (BUY) small-cap stock, with $144 million in market capitalization. The dividend is $0.12 (1.11%) annually. Shares price at $11. The Zacks Value score is B and the overall Zacks VGM score is C. The forward P/E is 21.5. That’s the highest valuation ratio of the 3 banks I discuss.
What’s the attraction (and danger)? This stock price technical chart shows some stiff momentum. The Zacks Momentum score is B. You have to be careful here. This stock could sell off hard in a downturn. I think buyers like these shares just because of the cheaper price. It’s a fun stock to ride for a bit.